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Singapore has the largest debt load in Southeast Asia, but the city-state is also one of the world’s wealthiest countries, with households holding assets worth $1.1 trillion under one estimate.
Singapore has the largest debt load in Southeast Asia, but the city-state is also one of the world’s wealthiest countries, with households holding assets worth $1.1 trillion under one estimate.

Fed Rate Hike Increases Asia’s Debt Concerns

A debt hangover in Asia matters because the region is the biggest contributor to global growth

Fed Rate Hike Increases Asia’s Debt Concerns

Twenty years after the Asian financial crisis and a decade since the global credit crunch, the region is swimming in debt.
The debt binge is spread across companies, banks, governments and households and is inflating bubbles in everything from the price of steel rebar in Shanghai to property prices in Sydney. As the Federal Reserve raises borrowing costs, that means debt is again a concern, Bloomberg reported.
Exposure to China’s slowdown, fluctuating commodity prices and currency volatility are just some of the risks. S&P Global Ratings estimates that of the almost $1 trillion in Asia corporate debt they rate that is due to mature by 2021, 63% of it is denominated in dollars and 7% in euros.
To be sure, there are sizable buffers too. Governments have strengthened their international reserves, hedging of risks has improved and deeper local bond markets offer alternative sources of finance. And while the Fed is tightening, ongoing massive monetary easing in Europe and Japan provides an offset. Interest rates remain low by historical standards and reflation is helping bring down servicing costs.
Still, the pace of borrowing is eye watering. A debt hangover in Asia matters because the region is the biggest contributor to global growth. Asia’s expansion will probably exceed 5% in 2017 and 2018, compared with about 3.5% for the world, according to the International Monetary Fund.
Asia's Big Five
China: China’s total debt likely reached around 258% of the economy’s size last year, up from 158% in 2005. President Xi Jinping and his government have made curbing excessive credit and leverage a key priority this year though progress appears to be slow. Much of the borrowing is at the corporate level, a sector that continues to be dominated by debt-laden state-owned enterprises, so-called zombie firms, with the IMF warning that China needs to urgently deal with company debt.
South Korea: After years of low rates and a property boom that help prop up the economy, South Korea has been left with a hangover. Record household debt of 1,344.3 trillion won ($1.2 trillion) has reached a level where repayment burdens are hurting consumption, and Korean officials worry that low-income households may default as the Fed’s tightening impacts domestic lending rates.
Japan: Japan is one of the most indebted nations in the world, with a gross government debt burden that is more than 2.5 times as large as its economy.
Australia: Australia’s household debt-to-income is a record 189%—much of it in mortgages. In the past year the value of housing-related debt outstanding climbed 6.5%, compared with just a 3% gain in household income, according to central bank Governor Philip Lowe. Annual wage growth is at a record low and consumer-price growth is weak, meaning Australians can’t inflate away their debts as they have in the past.
India: Although smaller than in some other Asian nations, there are various interconnected debt problems in India. The government debt-to-GDP ratio is nearly 70%, much higher than similar BBB rated sovereigns, Fitch Ratings Ltd. said in a report this month. And corporate debt is increasing, along with a rise in bad loans, which is causing risks for the banking sector.
Southeast Asia
Southeast Asian countries have relatively lower debt levels by Asian standards but leverage has increased in recent years with corporate and household debt becoming a particular concern in Thailand and Malaysia.
Thailand's household debt at the end of 2016 stood at 11.47 trillion baht ($33 billion), up 3.4% year-on-year and 1.2% quarter-on-quarter. Malaysia’s overall debt load rose to 240% of GDP, up from 173% of GDP.
Singapore has the largest debt load in Southeast Asia, but the city-state is also one of the world’s wealthiest countries, with households holding assets worth $1.1 trillion under one estimate.
The Philippines and Indonesia have avoided the accelerating pace of leverage elsewhere, partly because of relatively less developed banking industries that make it harder for households to borrow. Indonesia also has strict fiscal rules in place, a legacy from past crises, that cap the annual budget deficit at 3% of GDP and total government debt at 60% of GDP.

 

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